LG Mobile Phone Revenue Drops 15.5% in Q1 2016 From Year Ago

Overall LG profits rose 65.5 percent, but its smartphone division faltered just before its latest LG G5 handset arrived on the market.


LG's overall first-quarter profit for 2016 rose 65.5 percent compared to a year ago, but that intriguing rise was at least jarred by a 15.5 percent drop in the company's smartphone revenue and a 12 percent drop in smartphone shipments in the quarter.

LG reported an operating profit of $420.25 million (505.2 billion KRW) for Q1 2016, which is a 65.5 percent jump from the $277.45 million (305.2 billion KRW) brought in during the first quarter of 2015.

Overall LG revenue for Q1 2016 was down, however, to $11.12 billion (13.36 trillion Korean Won) from the $12.72 billion (13.99 trillion KRW) brought in one year ago, according to the company's financial figures, which were reported April 28.

Sales for LG's mobile phone division were disappointing, with revenue of $2.46 billion, (2.96 trillion KRW), which is down 15.5 percent from Q1 2015, according to LG. Smartphone shipments were also down, to 13.5 million units, which is 12 percent lower compared to a year ago and to the fourth quarter of 2015.

LG attributed the drops in mobile phone revenue and sales to "a result of the business entering the slow season as well as declining shipments of existing flagship models due to high interest in the recently announced LG G5." The company said it expects that "competition in the smartphone market will continue to increase, leading to further price erosion which LG plans to counter with a strong global push for the modular LG G5 smartphone and new mass-tier models such as its X series."

LG's mobile division posted an operating loss of $168.2 million (202.2 billion KRW), "primarily due to increased marketing expenditures for the new LG G5 flagship smartphone," the company reported.

While the mobile division suffered, LG said it was bolstered by other divisions that performed well, including its home appliance and air solution products.

"LG's overall global sales and profitability are expected to improve in the second quarter, with double-digit growth in revenues and higher profitability anticipated as LG continues its premium-focused strategy with LG Signature products, the LG G5 smartphone and 4K Ultra HD OLED TVs," the company said in a statement.

Avi Greengart, an analyst with Current Analysis, told eWEEK that LG's Q1 "mobile losses reflect investments in marketing the G5 smartphone ahead of launch," but that the company was able to withstand those losses because of good performances in other divisions. "Fortunately, LG's appliances and televisions are selling well, which gives the mobile group some cushion to invest up front in the hopes of seeing returns when G5 sales show up in the next quarter."

That's not a guarantee of increased sales, however, he added. "There may not be much: not only is Samsung doing well in the premium smartphone space, making it harder for LG to succeed, but LG's G5 is predicated on consumers buying into its modular design concept, and there are limited G5 add-ons available at launch."

Charles King, principal analyst at Pund-IT, told eWEEK that other than the mobile division, "LG's financial performance in the past quarter gave investors something to smile about today, but the company admitted that it faces tough issues in the longer term."

With major mobile players, including Apple seeing sales erode, "the road ahead for LG looks rocky, at best," said King.

Jan Dawson, chief analyst for Jackdaw Research, agreed. "Back in 2013 and 2014, it looked like LG might have finally cracked its smartphone business–it was growing and even flirted with profitability for a while, but things have been going downhill since late 2014 and there's no sign of improvement there," he said. "It's basically suffering from the same issues as most Android smartphone vendors–a lack of differentiation at the high end, and being undercut by budget Android smartphones at the low end, leaving it without much of a market. In a saturating global smartphone market, that's a really tough spot to be in."

LG's smartphone sales situation is in contrast to Samsung's Q1 results, which were also announced on April 28. Samsung threw the dice in March and released its latest flagship Galaxy S7 and Galaxy S7 Edge smartphones a month earlier than usual, which led to revenue and profit figures that are 6 percent and 12 percent higher than the same quarter one year ago. The news was finally good for the beleaguered smartphone, consumer appliance, display and semiconductor company, especially after a run of tough financial quarters over the past year as it fought tough competition from Apple's iPhones and others.

In the company's first quarter of 2016, Samsung posted revenue of $43.8 billion (49.78 trillion Korean Won) and net income or profit of $5.58 billion (6.68 trillion KRW), which are up 5.7 percent from 47.12 trillion KRW in revenue and up 12 percent from 5.98 trillion KRW in profit from the same quarter one year ago. The 49.78 trillion KRM in revenue exceeded the 49 trillion KRW the company announced in early April when it released preliminary estimates based on early figures.

Samsung's mobile division, which includes smartphones, brought in 27.60 trillion KRW in Q1 2016, which is up from the 25.89 trillion KRW brought in one year ago. Profit for the mobile division was 3.89 trillion KRW, up from 2.74 trillion KRW one year ago. The company said it also saw good performance in its mobile division due to "strong sales and improved cost efficiency through the streamlining of mid-to-low-end smartphone lineups."

Samsung's mobile phone results contrasted sharply with those of Apple, which earlier this week announced its Q2 2016 earnings that saw a quarterly decline in revenue for the first time since 2003. Apple reported revenue of $50.6 billion, 13 percent lower than the $58 billion the company posted one year ago. Net income was also down in Q2 to $10.5 billion from $13.6 billion a year ago as sales of the company's flagship iPhone smartphones leveled off ending Apple's enviable 13-year record of uninterrupted sales growth. Apple's latest iPhone 6 models went on sale last September.